We are all aware that property values have taken a hit in recent months. Unemployment is rising. Many homeowners are strapped with house payments that they cannot afford. This has caused a much more common occurrence… a short sale.
I would like to explain the basics of a short sale. A short sale is process where someone works to negotiate mortgage terms with a lender so that the homeowner will avoid foreclosure. This is called loss mitigation. When a homeowner needs to sell a home and the amount owed on the mortgage is greater than the value of the property, you have a short sale situation.
A foreclosure is the process of the bank taking back ownership of a house due to the homeowner’s inability to pay their mortgage. A short sale, on the other hand, is sold by the homeowner before a foreclosure takes place. Ultimately, in a short sale, the lender agrees to accept less payment for the home than what is actually owed to them. The listing price for the home is determined by the market analysis or price opinion done by the REALTOR, by the amount that is owed, by the condition of the house and by the current market conditions.
By definition, any homeowner that is two months late on their mortgage payment and can also demonstrate the inability to pay their mortgage would be considered a short sale candidate. The homeowner is considered pre-foreclosure when the bank officially sends a notice of default or a notice that they’re taking legal action against the homeowner to collect the debt. A short sale can still be negotiated even during the foreclosure process.
There are basically two reasons that a homeowner is not eligible for a short sale: 1) The foreclosure has already taken place and the home is up for auction. 2) The homeowner files for bankruptcy. A short sale can help make the best of a difficult situation. The bank or mortgage lender is willing to proceed because they are able to recapture as much of this non-performing loan as possible. The seller is helped because they’re going to be forgiven for a large portion of the money they owe and their credit will not be as severely affected as with a foreclosure. The buyer of the home benefits because they can obtain a property at a lower price.
Though the mortgage industry and the ramifications of credit issues are changing (almost on a daily basis), we have been told by some folks that a short sale is a better option than a foreclosure is because it saves the seller’s credit from being damaged as severely. It has been reported that a foreclosure can drop a homeowner’s credit score by 300 points or more. A short sale is said to affect a homeowner’s credit score by 80 to 100 points on the average. We have been told that a short sale reads on your credit report as a paid lien or paid judgment, and is easier and quicker to repair than a bankruptcy or foreclosure. We are currently checking for further verification of this information, but, as it is constantly in a state of flux at this time, you should contact us so we can connect you with the latest information we have.
What should you do if you are facing this struggle? Call the Veenstra Team today at 269-350-5514. We will do a market analysis of your home and help you determine your options. When you are in this situation, waiting is NOT a positive step. You can reach the Veenstra Team at 269-350-5514 or email us firstname.lastname@example.org.